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    Should You Be Impressed By AGORA Hospitality Group Co., Ltd's (TSE:9704) ROE?

    Simply Wall St·12/19/2025 21:18:54
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    One of the best investments we can make is in our own knowledge and skill set. With that in mind, this article will work through how we can use Return On Equity (ROE) to better understand a business. By way of learning-by-doing, we'll look at ROE to gain a better understanding of AGORA Hospitality Group Co., Ltd (TSE:9704).

    Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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    How Do You Calculate Return On Equity?

    ROE can be calculated by using the formula:

    Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

    So, based on the above formula, the ROE for AGORA Hospitality Group is:

    19% = JP¥1.7b ÷ JP¥8.7b (Based on the trailing twelve months to September 2025).

    The 'return' refers to a company's earnings over the last year. That means that for every ¥1 worth of shareholders' equity, the company generated ¥0.19 in profit.

    Check out our latest analysis for AGORA Hospitality Group

    Does AGORA Hospitality Group Have A Good ROE?

    One simple way to determine if a company has a good return on equity is to compare it to the average for its industry. However, this method is only useful as a rough check, because companies do differ quite a bit within the same industry classification. As is clear from the image below, AGORA Hospitality Group has a better ROE than the average (12%) in the Hospitality industry.

    roe
    TSE:9704 Return on Equity December 19th 2025

    That's what we like to see. Bear in mind, a high ROE doesn't always mean superior financial performance. Aside from changes in net income, a high ROE can also be the outcome of high debt relative to equity, which indicates risk. Our risks dashboardshould have the 4 risks we have identified for AGORA Hospitality Group.

    The Importance Of Debt To Return On Equity

    Virtually all companies need money to invest in the business, to grow profits. That cash can come from issuing shares, retained earnings, or debt. In the first and second cases, the ROE will reflect this use of cash for investment in the business. In the latter case, the debt used for growth will improve returns, but won't affect the total equity. That will make the ROE look better than if no debt was used.

    Combining AGORA Hospitality Group's Debt And Its 19% Return On Equity

    It's worth noting the high use of debt by AGORA Hospitality Group, leading to its debt to equity ratio of 1.03. There's no doubt its ROE is decent, but the very high debt the company carries is not too exciting to see. Investors should think carefully about how a company might perform if it was unable to borrow so easily, because credit markets do change over time.

    Conclusion

    Return on equity is useful for comparing the quality of different businesses. In our books, the highest quality companies have high return on equity, despite low debt. All else being equal, a higher ROE is better.

    But when a business is high quality, the market often bids it up to a price that reflects this. It is important to consider other factors, such as future profit growth -- and how much investment is required going forward. You can see how the company has grow in the past by looking at this FREE detailed graph of past earnings, revenue and cash flow.

    If you would prefer check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, that have HIGH return on equity and low debt.